#SFSNYC: Strategizing for the Coming Local Consolidation
In the six years since Street Fight was founded to cover hyperlocal media and tech, companies in the local sector have popped up at a breakneck pace and are now being snatched up just as fast by their competitors. In the past couple weeks alone, two major acquisitions in local stole headlines, as Snap scooped up Placed and OwnLocal acquired its older competitor, Wanderful Media.
To break down this issue, Street Fight CEO and founder Laura Rich sat down with four experts in tech, SMBs, and mergers and acquisitions at Street Fight Summit in Brooklyn Tuesday. The panel provided perspectives on what it takes to secure a successful exit for a startup, why some acquisitions work out better than others, and how to keep a spirit of innovation alive amid widespread consolidation.
Mark MacLeod, partner at SurePath Capital, a firm that advises tech companies specializing in SMB software, touted the importance of fit and specialization in companies looking to put together mergers and acquisitions. “The world is becoming increasingly specialized,” MacLeod said. As a result, companies need to develop expertise to make successful deals.
Along the same lines as an increasing need for specialization, MacLeod said most acquisitions in coming years will be small. Though acquisitions for millions and millions of dollars tend to grab headlines, the vast majority of acquisitions in local digital marketing are closed for a fraction of that sum.
In fact, even for small companies looking to get acquired, proof that their products can work at scale is key, said Adam Burrows, SVP and GM of emerging businesses at HomeAdvisor, which connects homeowners with local home-improvement services. Describing the type of company HomeAdvisor would be willing to acquire, Burrows said, “We really want somebody who’s proven they can already do it at scale. We’d rather pay up for someone who’s proven that versus taking a chance.”
MacLeod and Burrows both underscored the importance of partnering with bigger companies for small companies looking to exit the marketplace. Larger companies are much more likely to acquire a smaller company if they have partnered with that company and know first-hand how functional it is, the two panelists said.
Joe Bardenheier, SVP of Corporate Development at Endurance, a group of brands that helps small businesses build out an online presence, joined the consensus on the importance of partnerships. Even if companies pitched to him for acquisition make sense “intellectually,” he is unlikely to act on the possibility without a proven fit via partnership, he said.
As major companies scoop up smaller rivals, “There’s a greater need for innovation,” said Jon Sofield of business development at Google. Industry bellwethers like Google sometimes struggle to innovate due to the sheer size of their enterprises, and they often look to smaller players for cutting-edge, specialized technological advances, Sofield said.
Big companies should not be reluctant to go after small companies that are truly innovating, Sofield said. “My biggest concern for us as an industry is being overly conservative because of fiscal responsibility from the companies doing the acquisitions.”
On the other hand, the panel voiced reluctance about the impact of high valuations generated by venture capital. Startups looking for a buyout should be wary of the impact of high valuations, which can take them out of a “sweet spot” and make them too expensive relative to the revenue their companies are capable of generating. Particularly unlikely to be acquired after receiving venture capital are companies that just offer features as opposed to more comprehensive products or platforms, multiple panelists said.
“Companies that are really just a feature in the last few years have raised a lot of money from VCs,” Burrows said. “We have not had any luck finding features at a compelling valuation.”
Joseph Zappa is Street Fight’s news editor. Photograph by Shana Wittenwyler.